Fearful Stocks for Greedy Investors

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
-- Warren Buffett

Of all the Oracle of Omaha's orations, this one holds a special place in Foolish investors' hearts. When looking to bag a bargain, a panicked sell-off by jittery investors offers you a great chance to snap up stocks on the cheap.

In the short term, professional traders' pessimism can become a self-fulfilling prophecy. Desperate institutions lower their asking prices to get rid of a stock, prompting buyers' bid prices to fall in tandem, creating the very price decline that both sides feared in the first place -- until the selling stops.

Until it does, savvy investors can "get greedy," snapping up bargains from these fearful sellers. (Assuming they really are bargains.) In today's column, we'll see which stocks Wall Street's motivated sellers are most frantic to unload. Once we've compiled this shopping list of potential picks, we'll check them against the collective intelligence of Motley Fool CAPS.

Today's contenders:

Companies are selected based on past-three-month changes in institutional ownership, as reported on finviz.com. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Judging from the star ratings our CAPS members have assigned to these stocks, it seems investors generally agree with Wall Street's pessimism over Pilgrim's Pride and Leap Wireless. In contrast, we're considerably more optimistic about Terra Nitrogen, CGG Veritas, and tiny AgFeed Industries. I have to say that I agree with the majority on all points this week.

Take Pilgrim's Pride, for example. Analysts don't expect this chicken farmer to earn chicken scratch in 2011, and while 2012's earnings may be better, the valuation's nothing to be proud about: 11 times forward earnings, on a stock expected to post only a 9% growth rate over the next five years.

Leap Wireless? That one requires an even bigger leap of faith. No earnings over the past 12 months. None expected this year. None next year, either. It's also burning cash like it's going out of style.

On the other side of the coin, we've got a couple of ag plays to feed a hungry world: Iowa-based fertilizer play Terra Nitrogen and Chinese hog farmer AgFeed Industries. The former sells for 10 times trailing earnings, while the latter costs four times forward earnings. However, I admit that I'm more optimistic about the former than the latter. Terra pays its shareholders a 12.4% dividend yield, suggesting great strength in its cash flows. AgFeed, in contrast, is one of those risky, cash-burning Chinese microcaps we've all read so much about lately. If you're risk-averse, or simply not fond of volatility, you might want to avoid that one.

None of those four stocks receives CAPS's highest rating of five Fool stars. That honor goes to French oil diviner CGG Veritas.

The bull case for CGG Veritas
Drilling for oil? CGG has got your back -- and not just yours. Picked as an 11 O' Clock Stock by Fool Nate Weisshaar back in 2010, CGG is billed as second only to Schlumberger (NYSE: SLB) in the seismic mapping industry, and it helps oil majors figure out where to drill for black gold.

As CAPS All-Star nocemployee informs us, CGG was "hit hard by the 2010 gulf oil scare." But it's come back with a vengeance, and fellow All-Star investor ikkyu2 thinks this is just the beginning: 

Any company that helps get oil out of the ground is, to my mind, distressed the way Michael Phelps gets distressed when he dunks his head underwater in the above ground kiddie wading pool. Is he drowning? Or will he inevitably get back above the surface to rise again?

While currently "unprofitable" according to GAAP, CGG generated $420 million in free cash flow over the past 12 months, which is actually subpar performance for the company. Historically, it's averaged closer to $600 million per year. Analysts expect it to earn $0.63 per share this year, then triple that haul in 2012, giving the stock an 18.6 forward P/E ratio. Longer term, analysts predict a simply phenomenal rate of earnings growth -- 45% per year over the next half-decade.

Time to chime in
With CGG set to turn GAAP-profitable again any day now, with a history of turning such profits into strong free cash flow, and with such awesome growth rates, I see no reason to fear CGG today. To the contrary, I believe it's poised to outperform.

Of course, that's just my opinion. If you disagree, here's your chance to tell me why I'm wrong. Click over to Motley Fool CAPS right now, and tell us what you think about CGG.